CRYPTO ACADEMY WEEK 14 HOMEWORK TASK GIVEN BY PROF @levicore ON LEARN ABOUT CRYPTOCURRENCY//DONE BY @kelvincole

Hello Everyone, Good to be back on this educative platform to attend to the task given by prof @levycore . The lecture was well simplified and articulated. Its indeed a great opportunity to be part of it.

Question1. What is the fundamental difference between Cryptocurrency and the conventional financial system?

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Cryptocurrency is a decentralized virtual/digital payment system that is not subjected to the dictate from any banks to verify its transaction, but rather operates basically on a peer-to-peer system that enables people to send or receive payments anytime and anywhere through a system called Blockchain.

The Conventional Financial system and the Cryptocurrency system operates differently in as much as they are connected by their exchange character. The differences between the two system are listed below:

• TYPE OF CURRENCY: The Cryptocurrency system operates a virtual currency for its transactions, why the Conventional Financial system operate/uses a physical currency for its transaction

• MODE OF OPERATION/EXCHANGE: Why the Conventional financial system is centralized and all transaction must go through a bureaucratic financial setup like Banks and other financial institutions, who acts as intermediaries,The Cryptocurrency system is highly decentralized and transactions are made directly from the sender to the receiver without any influence or activity of a third party or intermediary.

• FAST & CONVENIENT: In the Cryptocurrency system, making investment and paying for goods and services is fast and convenient because it can be done at any time by anyone and anywhere without any bureaucratic bottleneck since every computer on the network records all transaction that occurs, but the Conventional financial system is slow and bureaucratized as it may require the sender to fill some KYC or visit the bank or other financial institution physically before transaction or transfers can be accomplished.

• NATURE OF VALUE: In the Conventional Financial system, an individual or group exchanges /transact money for something that has value. That is to say that the individual trades money for something he wish to possess or that gives value. In the Cryptocurrency system on the other hand,value is substituted or traded in form of cryptocurrencies.

• ACCEPTABILITY: For the Conventional Financial System, its usage is limited to a country or group of countries, like in the case of Nigeria, where Naira is only used in Nigeria, or the US Dollar that can be used in U.S and other selected countries. Cryptocurrency is globally accepted and not restricted to any country or countries.

• COST OF TRANSACTION: Operating in the Cryptocurrency decentralized system is free, the trader does not have to incur any cost or commission for transacting with cryptocurrencies, but the Conventional Financial System is subjected to financial policies incurred when transacting and it comes in form of administrative fees or monthly deductions.

• MODE OF CONTROL: The Cryptocurrency decentralized system operates a blockchain that ensures that the individual or trader has complete control over his fund or transaction, and not subjected to the dictate or regulations of any central administrative system. But the Conventional financial system on the other hand, is a centralized system that subjects the individual to rules, policies that guide the system. Here, their operations are dictated by the Central Banks and other financial institutions, and as such, the individual does not have complete control of how and when to execute their transactions

• ACCESSIBILITY: Cryptocurrencies can be used by anyone or an entire society, including areas or population settlement that has no access to financial resources,but for the Conventional Financial system, certainly not everyone has access or opportunity to operate a bank account.

• MODE OF INFLUENCE: Why the Cryptocurrency decentralized system is influenced by supply/demand only, that is, the price of a Crypto asset is determined solely by the forces of demand and supply, but in the Conventional Financial System, price is highly influenced by inflation and interest rate.

Question2. Why is a decentralized system needed?

The Decentralized system of transaction, which Cryptocurrency rightly represent, is ideal in so many ways and also can be seen as the future of global economic transactions. The reasons listed below further emphasizes the usefulness of the Decentralized System.

• Control Mechanism: The Decentralized system allows the user or trader to have total and direct control over his transactions and as such, he is at liberty to do business however or whenever he deem fit as he is not subjected to rules or regulation guiding the system.

• Transparent: The Cryptocurrency decentralized system is more transparent, because it allows the traders to see how their transaction is happening. Since the Cryptocurrency decentralized system operates on an open source blockchain,the traders can directly monitor their transactions and be well inform on when to increase their investment or exit the trade. Information or data on transactions as well as transactions history is open to the public to see and as such there is rarely room for Data manipulation or editing.

• Simple,Fast and Convenient: The Decentralized system is more convenient, fast and simple to use as the trader engages the buyer directly. Here, the trader can decide whenever and whatever time he decides to transact with the buyer, without having to consider going to the Bank or getting permission from any financial institution. The trader irrespective of his location can transact freely and quickly with buyers from other locations at the twinkle of the eye.

• More Secure: The decentralized system is more secured and safe for use. In this system, there are few cases of hacking or data manipulation, because every transaction is transparent and open for all to see. The data are not stored in just a single central server, rather information are stored in several server that makes it possible to call up in cases of one server been hacked.

• The Decentralized Cryptocurrency system is more resilient to inflation. It is more flexible to overcome adverse effect of inflation and this system is less influenced by interest rate but basically by the pressure of demand and supply

• The Decentralized system is free to operate. The trader does not need to pay any fee for doing his transactions directly with his buyer or is he oblige to pay any weekly or monthly commission as a result of transaction made.

• Volume of Transaction: The decentralized system of Cryptocurrency transaction does not only guarantee high level of trust and confidence, but it is also able to handle much larger volumes of transactions at the go, and ensures that information interchanged with other blockchain networks are not altered or manipulated before they are executed during the process

Question3. What affects the value of cryptocurrencies?

• Market Volatility: The value of Cryptocurrency can easily depreciate as a result of prevailing market trend at a particular point in time. Here, the unpredictability of the market as well as the constant rise and fall in price can affect the value of Cryptocurrency.

• System Vulnerability: Cryptocurrencies seen as a virtual means of transacting, that requires no formal, administrative or financial clearance, can easily be manipulated or taken advantage of by Fraudsters to launder huge sum of money.This is so because it does not operate with real identity and has a high liquidity.

• Non Legal Entity: In some countries, Cryptocurrencies is not seen as a legal tool for transaction, rather, the conventional means of payment peculiar to that country is used for all transactions. The Central Bank and some financial institutions are prohibited from dealing with cryptocurrencies limiting it only to P2P transaction and as such , it tend to reduce the value of cryptocurrency.

• Special Skills/Expertise: Cryptocurrency would require a high level of skills/expertise, especially in understanding the market trend and even increasing the number of Cryptocurrencies in trade through mining.However, not having adequate qualified or well trained personnel handling/involved in the cryptocurrency system can invariably affect the value of the currency.

• Cost of Production: The value of Cryptocurrency can be determined by the direct and opportunity cost of producing a coin.For example a coin with a higher cost of production(Bitcoin for example) tend to have a higher value. In other words, the energy and resources put in producing a particular Crypto asset determines the value that crypto asset possess.

• Utility/Usage: How universally acceptable a coin is, affect its value. This is to say that the more people have access to or utilizes cryptocurrency, or the higher the demand for cryptocurrency, the higher its value and vice versa.

Question4. Why can't everyone be a miner?

The term Crypto Mining simply refers to introducing more Cryptocurrencies into the trade by solving Crypto graghic equations with the use of high level computers with particular specifications. These Miners are known to engage in the solving of computational puzzles with high powered computer devices, which in turn , they earn tokens or are rewarded. The high cost of equipment as well as power supply during the mining process definitely is a major drawback for many who have the desire to be Miners. Some of these financially demanding resources that tend to discourage people from taking into Crypto Mining are:

1) Digital Wallet: Anyone who is interested about mining will certainly need to set up a digital wallet first. This digital wallet is a software that allows him to exchange Cryptocurrencies with other people in the blockchain and also to access his account balance. Why the wallet may be less expensive to buy, other hardware that may be required for the mining may be very expensive and as such, people get discourage to venture into it.

2) Cost of having a dedicated Mining Computer: As a potential Miner, you will need a high powered computer specifically dedicated for Mining.The cost involved in getting such computers may be too high for one to venture into, considering the fact that the huge capital put in getting the computers, may rather be enough to invest into Cryptocurrency.

3) Cost of Electricity/Power Supply: The cost of electricity and power supply, varies from one location to another. In areas where the cost is high, it may be very expensive/costly using power to mine cryptocurrency.Thus, the huge investment in power during the mining process in relation to the actual value of that Crypto asset, may be a major drawback for many.

4) Cryptocurrency value/Market volatility: The unpredictability of the market, occasioned by constant rise and drop in prices,may affect the value of cryptocurrency. Hence, a potential miner ,considering all the cost he may incur on equipment and hardware before and during the mining process, and the eventual drop in the value of the cryptocurrency , may decide against venturing into mining.

5) High Risk Involved: The Cryptocurrency decentralized system is very unpredictable and the market is highly volatile. As such, the huge investment in cryptocurrency mining may be too much of a high risk. This is because the individual may end up investing his time, energy and resources into mining and still end up getting nothing.

6) High level of Expertise/Skills: Venturing into Cryptocurrency requires high level expertise to quickly and efficiently solve mathematical puzzles.Hence, becoming a miner and earning from its reward pool is difficult especially for those without the requires specialized skills.

Question5. Why can cryptocurrency transactions be called more transparent?

By transparent transaction, we mean a transaction that is consistent, reliable and open for all to see. Cryptocurrency being a decentralized system that gives traders total control over their transactions irrespective of where they are,operates an open source blockchain, where the trader has the opportunity to get to monitor his transactions in the blockchain.
In the Cryptocurrency decentralized system, all information pertaining to transaction are stored in nodes,and the stored nodes are made available to all system connected to the blockchain network, thus making it possible for investors to conveniently monitor their transactions from wherever they are.

The steps listed below, further emphasizes how transparent the cryptocurrency decentralized blockchain is:

1) Successful information on transaction hashed in a block are stored in a blockchain.

2) The saved information/data cannot be manipulated, altered or deleted.

3) The saved information stored in the blockchain are made available to all devices operating globally which are connected to the blockchain.

4) The Blockchain being an open source, is open to regular audit on its transaction at any particular point in time.

5) Information/data of all transaction done and saved in the blockchain are now in the public domain for all to see whenever they wish to.

Question6. Explain how the development of cryptocurrency in your country?

Nigeria being the largest Bitcoin Market in Africa, has experienced vast growth in the use of Bitcoin in recent years as a means of transacting. Most of her younger population are now more interested to invest in Crypto asset or key into the cryptocurrency world.

So many reasons can account for this sudden attitude/disposition towards Cryptocurrency/digital trading:

• Most Nigerians turned to alternative currencies as a result of scarcity in dollars due to the strict Forex laws introduced by Govt as well as stringent banking regulations.

• The fall in the value of the local physical currency as a result of rise in inflation also propelled people to adopt Cryptocurrency

• The high rate of unemployment, especially by graduates from respective tertiary institutions and their desire to earn a living working from home while waiting for better opportunities, also led many into adopting Cryptocurrency

This desire and urge by majority of the younger population to adopt a stable means of exchange for their investment as well as purchases, due to consistent fall in the value of the Naira (The local physical currency used in Nigeria),led to the Central Bank releasing a statement on 16th February 2021, prohibiting financial institutions from indulging in transactions related to Cryptocurrencies vis-a-vis buying and trading of Crypto asset through banks. The account of people actively involved in Cryptocurrencies or digital asset transactions were asked to be closed immediately by the banks and financial institutions that they were operating with. The Banks and Financial institutions were mandated to ensure compliance or face sanctions. The financial institutions were also not allowed to engage in any form of digital assets and processing remittance for cryptocurrency exchanges.

Most people believed that the Ban was in a way connected to the END SARS protest that took place in the country last year, which the Govt felt that the money used to fund the protest was derived from Bitcoin and other Cryptocurrencies, since the bank account of those who were involved in the protest were already restricted by the Govt.Hence, there was need for the Govt to curtain future re occurrence.
The Central Bank leadership also pointed out that Cryptocurrencies were used to finance Terrorism and to encourage money laundering, since it does not have a direct user identity or KYC.

Conclusively, with the Ban on Cryptocurrencies due to the several reasons stated above, Cryptocurrency is now operated basically on a peer to peer basis in Nigeria.

Thank You.

Many Thanks to Prof @levycore for the lecture and the opportunity to learn from it. Looking forward to more of such educating lectures.